UK rate 'to stay at 4% for six months'

Monday 30 December 2002 17:26 BST

CITY pundits expect British interest rates to remain at 4% for at least another six months, marking the longest period of no change since the early 1950s. If the analysts' forecasts prove correct, the cost of borrowing will have been kept on hold for at least a year and a half before any change is brought in.

The consensus of City economists is matched by the interest rate futures market, which is not pricing in a rate rise until the final quarter of next year. Even when that move comes, it will only be a quarter of a percentage point, according to the markets.

A poll of 35 economists surveyed by Bloomberg News was slightly more hawkish, predicting rates would end 2003 at 4.5%. Andrew Milligan, head of global strategy at Standard Life Investments said: 'There is a very strong consensus out there that rates are going nowhere.'

Global economic worries and a struggling British manufacturing industry has been balancing against the strength of the housing market, a consistently optimistic consumer and robust British gross domestic product.

Recent signs that consumer confidence is taking a dip, combined with evidence that the peak of the housing market has been reached, could put pressure on the Bank of England's monetary policy committee to vote for a cut but analysts say the chances are slim - 'about one in three', said Milligan.

HSBC economist John Butler said: 'Rates are at a stalemate. Things are going to remain tough for the economy. But if they cut again, they destabilise the housing market.'

The last time rates were on hold for more than 18 months was between October 1939 and March 1951, when the cost of borrowing stayed at 2%.